The uncertain times we are living in motivate us to work toward financial security. One of the tools in our financial planning toolbox is life insurance. While we tend to think about life insurance for ourselves, another family member’s death could have a huge impact on our financial stability. Thinking about a loved one’s eventual death is mentally and emotionally taxing, so buying life insurance for a loved one provides peace of mind for the family.
Purchasing Life Insurance for a Spouse
The loss of a primary breadwinner’s income can devastate a family. While this is the main reason married couples or partners purchase a life insurance policy, there is equal benefit in purchasing a life insurance policy for a non-earning spouse.
A spouse who does not have to work has plenty of duties at home to take care of – caring for children, buying groceries, doing laundry, cleaning the house, running errands, and so much more. If the non-working spouse dies, the surviving spouse would have to take over all of these duties or hire someone else to do them. A death benefit payout would go a long way toward managing such expenses.
Purchasing Life Insurance for Parents or Siblings
When children become self-supporting adults, it seems there would be no reason for them to purchase life insurance on a parent. Nonetheless, there are certain situations where it makes sense to take out a policy on elderly parents. Adult children can use the death benefit of a life insurance policy to pay for long-term care, estate taxes, or funeral expenses, all of which can be quite costly.
In another example, when one aging parent dies, the surviving parent may not be able to live alone. The proceeds from a life insurance policy may be used to pay for live-in care or to move the surviving parent to an assisted living facility.
In the case of a sibling who financially supports their parents, the expenses could pass over to another adult child, and life insurance could provide funds to continue taking care of their parents.
Purchasing Life Insurance for Children
Unless a child is a celebrity, families typically do not depend on their children financially, so it appears there is no reason to purchase life insurance for a child.
Nonetheless, some parents may purchase life insurance for other reasons. By purchasing a life insurance policy for a child when they are young and healthy, the child will not have to worry about not being able to get life insurance later in life if their health deteriorates. Moreover, the life insurance premium would be locked in at a very low rate. Furthermore, some parents may opt to use the cash value in a life insurance policy to fund their child’s college expenses. Lastly, some parents may choose to use a life insurance policy as part of a financial strategy for passing on wealth to their children.
Considerations When Purchasing Life Insurance on a Family Member
Buying life insurance for a loved one is not always a simple process. The purchaser must have an insurable interest and the insured person’s consent.
Insurable interest means the person buying the insurance would have financial hardship if the insured person passed away. As part of the application process, insurance companies will ask for proof of insurable interest.
Also, the person who is being insured must consent to the life insurance policy. The insured must agree to answer questions on the life insurance application and take a medical exam if the insurance company requires it.
Final Thoughts
A life insurance policy is valuable for almost everyone. Depending on the circumstances, it may also make sense to purchase life insurance on a spouse, parent, or child. As long as a life insurance purchaser has an insurable interest in the person and they have the insured’s consent, buying life insurance for a loved one should be a smooth process.
